The ITO, Ward-6(2), Ahmedabad V. Shri Tejas J.Amin, Ahmedabad

ITA 168/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1786 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 19-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Gift; Business income; Salary income; Rule of consistency; Transactions in derivatives; Earning of tax free income
• Section: 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO. 168/AHD/2012 ASST. YEAR: 2008-09 INCOME-TAX OFFICER, WD-6(2), AHMEDABAD. VS. SHRI TEJAS J. AMIN, CHANDRA COLONY, NR. MARUTI CARGO MOTORS, LAW COLLEGE, ELLISBRIDGE, AHMEDABAD. APPELLANT RESPONDENT PAN ABNPA 2807K APPELLANT BY SHRI V. K. SINGH, SR.DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 4/2/2016 DATE OF PRONOUNCEMENT: 04/04/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-XI, AHMEDABAD, DATED 3.11.2011 IN APPEAL NO. CIT(A)- XI/268/ADDL.CIT R-6/10-11. ASSESSMENT ORDER U/S 143 (3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FOR ASST. Y EAR 2008-09 WAS FRAMED BY ADDL. CIT, RANGE-6, ON 23.11.2010. REVENU E HAS RAISED FOLLOWING GROUNDS :- 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO TREAT T HE INCOME OF RS.2,04,87,755/- FROM THE SALE OF SHARES AS SHORT T ERM CAPITAL ITA NO.168/AHD/2012 ASST. YEAR 2008-09 2 GAIN, INSTEAD OF BUSINESS INCOME, AS ASSESSED BY TH E ASSESSING OFFICER. 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.11,598/- M ADE U/S.14A R.W. RULE-8D OF THE I.T. RULES, 1962. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. COMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASS ESSING OFFICER BE RESTORED. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE IS AN INDIVIDUAL DERIVES INCOME FROM SALARY, INCOME FROM BUSINESS. HE FILED HIS RETURN OF INCOME ON 23.8.2008 THROUGH E-FILING DECLARING TOTAL INCOME AT RS.1,93,12,540/-. THE CASE WAS SELECTED F OR SCRUTINY ASSESSMENT UNDER CASS. NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 19.8.2009 AND SERVED UPON THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION ASSESSEE DISCLOSED SHORT TERM CAPITAL GAIN OF RS.2,04,87,755/-, BUSINESS LOSS AT RS.14,64,380/- A ND SPECULATION INCOME OF RS.87,595/-. THE ASSESSEE ALSO CLAIMED EX EMPTION OF DIVIDEND INCOME OF RS.11,598/- AND GIFT OF RS.10,00 5/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS ISSU ED SHOW CAUSE NOTICE AS TO WHY THE INCOME DERIVED ON SALE O F SHARES AMOUNTING TO RS.2,04,87,755/- SHOWN AS SHORT TERM C APITAL GAIN SHOULD NOT BE TREATED AS INCOME FROM BUSINESS. IN R EPLY THERETO ASSESSEE SUBMITTED THAT ASSESSEE HAS BEEN DEALING I N SHARES AND SECURITIES AS INVESTOR TILL THE END OF FINANCIAL YE AR 2006-07 AND ITA NO.168/AHD/2012 ASST. YEAR 2008-09 3 DURING THE YEAR UNDER APPEAL HE HAS SHOWN GAIN FROM SALE OF SHARES WHICH WERE ACQUIRED PRIOR TO F.Y. 2007-08 AS INCOME FROM CAPITAL GAIN AND PROFIT FROM DEALING IN SHARES THEREAFTER H AS BEEN SHOWN AS BUSINESS INCOME. HOWEVER, LD. ASSESSING OFFICER WA S NOT CONVINCED WITH THE REPLY BECAUSE HE OBSERVED THAT IN THE AUDI T REPORT IN FORM NO.3CD IT WAS CLEARLY MENTIONED THAT ASSESSEE IS EN GAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND AL SO VOLUMINOUS TRANSACTIONS WERE FREQUENTLY ENTERED INTO BY THE AS SESSEE IN PURCHASE AND SALE OF SHARES AND AS A RESULT HE DISA LLOWED THE CLAIM OF ASSESSEE FOR SHORT TERM CAPITAL GAIN AND TREATED THE SAME AS BUSINESS INCOME AND ALSO MADE MINOR ADDITION FOR DI SALLOWANCE U/S 14A OF THE ACT AT RS.11,598/- AND GIFT OF RS.10,005 /- AND INCOME OF THE ASSESSEE WAS ASSESSED AT RS.1,93,34,140/- AND S HORT TERM CAPITAL GAIN FROM SALE OF SHARES WAS TAXED AS BUSIN ESS INCOME. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A). 4. AS REGARDS GROUND NO.1 RAISED BY ASSESSEE TOWARD S TREATING THE INCOME OF SHORT TERM CAPITAL GAIN OF RS.2,04,87 ,755/- AS BUSINESS INCOME, LD. CIT(A) DELETED THE ADDITION BY ACCEPTIN G THE CONTENTION OF ASSESSEE BY TREATING THE PROFITS FROM SALE OF SHARE S AT RS.2,04,87,755/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME AS ASSESSED BY ASSESSING OFFICER BY OBSERVIN G AS UNDER :- 2.3 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. I HAVE ALSO -GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE ID. A.R . AFTER TAKING IN VIEW OF MATERIAL AVAILABLE ON RECORDS AND THE LEGAL POSITIO N ON THIS ISSUE, I AM INCLINED TO AGREE WITH THE SUBMISSIONS OF THE ID. A.R. FOR THE FOLLOWING REASONS: ITA NO.168/AHD/2012 ASST. YEAR 2008-09 4 (I) IT IS SEEN THAT APPELLANT HAS .CLAIMED SHORT TE RM CAPITAL GAIN IN RESPECT OF 54 TRANSACTIONS ONLY. THESE TRANSACTIONS BEING SMALL IN NUMBER, IT CANNOT BE SAID THAT APPELLANT WAS ENGAGE D IN THE BUSINESS OF TRADING OF SHARES. (II) AS PER THE CBDT CIRCULAR NO.4/2007 DT. 15-6-20 07, MOST IMPORTANT CRITERIA TO BE APPLIED FOR TREATING THE SHARE TRANS ACTION AS INVESTMENT IS THE TREATMENT GIVEN BY THE APPELLANT TO THESE TRANSACTIONS IN HIS BALANCE SHEET. IT IS SEEN THAT APPELLANT HAS CLAIMED SALE PROCEEDS OF STOCKS AS SHORT TERM CAPIT AL GAIN IN RESPECT OF 7/8 SCRIPS ONLY. MOST OF THESE SCRIPS WE RE PURCHASED IN THE IMMEDIATELY PRECEDING A.Y. I.E. A.Y. 2007-08. I N THE BALANCE SHEET OF A.Y. 2007-08 I.E. F.Y. 2006-07 APPELLANT H AS DECLARED INVESTMENTS IN THE FOLLOWING SHARES: 1) HDFC PLATING RATE INCOME FUND 2) KOTAK BOND FUND 3) HINDUSTAN UNILEVER LTD. 4) ICICI BANK LTD. 5) LOK HOUSING CONSTRUCTION LTD. 6) NTPC LTD. 7) PARSHWANATH DEVELOPERS LTD. 8) RELIANCE COMMUNICATION LTD. 9) TATA CONSULTANCY SERVICES LTD, APPELLANT HAS CLAIMED SHORT TERM CAPITAL GAIN AGAIN ST TRANSACTIONS OF THESE SCRIPS. SINCE PURCHASE OF THESE SHARES WAS DECLARED BY THE APPELLANT IN HIS BOOKS OF ACCOUNT AS INVESTMENT, ACCORDINGLY SALE PR OCEEDS IN RESPECT OF THESE SHARES SHOULD BE TAXED AS CAPITAL GAIN. 2.4 C.B.D.T. CIRCULAR WAS ISSUED IN THFE YEAR 2007 . LAW ON THIS ISSUE HAS FURTHER EVOLVED AFTER ISSUE OF THIS CIRCULAR. HON'BLE MUMBA I HIGH COURT IN THE CASE OF GOPAL PUROHIT V/S. JC1T 209 SOT 117 AND HON'BLE LUC KNOW ITAT IN THE CASE OF SARNATH INFRASTRUCTURE PVT.LTD. V/S. ACIT 122 TTJ 2 16 IT IS HELD THAT IT IS OPEN TO THE ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, O NE RELATING TO INVESTMENT AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING D EALING IN SHARES. THE TRIBUNAL HAD CORRECTLY HELD THAT THE DELIVERY BASED TRANSACT IONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTM ENT TRANSACTTBNS AND THE PROFIT RECEIVED SHOULD BE TREATED AS THOSE IN THE NATURE O F INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS OR AS THE CASE MAY BE LONG TERM CAPITAL GAINS, DEPENDING UPON THE PERIOD OF HOLDING. THESE CASES ARE REGULARLY FOLLOWED BY HON'BLE AHMED ABAD ITAT ALSO. AS THE RECORD INDICATES THAT SHARES IN QUESTION WERE REGIS TERED IN THE NAME OF APPELLANT, THUS IT CAN BE SAFELY SAID THAT THE TRANSACTIONS AR E DELIVERY BASED, ACCORDINGLY, ITA NO.168/AHD/2012 ASST. YEAR 2008-09 5 RESPECTFULLY FOLLOWING THE RATIO OF ABOVE DECISIONS , SALE PROCEEDS IN RESPECT OF THESE SHARES SHOULD BE TREATED AS CAPITAL GAINS. IN VIEW OF THE ABOVE, I AM OF THE FIRM OPINION THAT SALE PROCEEDS OF RS.2,04,87,755/- SHOULD BE TAXED AS SHORT TERM CAPI TAL GAIN AS DECLARED BY THE ASSESSEE. THIS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. 6. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER AND DID NOT PLACE ANYTHING NEW BEFORE US. 7. ON THE OTHER HAND, LD. AR SUBMITTED THAT ASSESSE E IS A CFA FROM ICFAI HYDERABAD AND JOINED MOTILAL OSWAL SECUR ITIES LTD. AS A SALARIED EMPLOYEE AND LEFT THE COMPANY IN 2006 AND DURING THIS PERIOD HE WAS ALSO ENGAGED IN INVESTMENT IN SHARES AND SECURITIES AND THE SAME HAVE BEEN DECLARED AS CAPITAL GAIN IN THE RETURN OF INCOME FILED BY HIM. 8. LD. AR ALSO SUBMITTED REFERRING TO BALANCE SHEET APPEARING AT PAGE -21 OF THE PAPER BOOK, EXHIBITING INVESTMENT I N EQUITY SHARES AT RS.23,28,219/-, INVESTMENT IN UNQUOTED SHARES AT RS .23,06,525/-, INVESTMENT IN MUTUAL FUNDS AT RS.6,38,951/- AND INV ESTMENT IN GOVT. SECURITIES AT RS.1,20,000/- AND EXHIBITED THAT SHOR T TERM CAPITAL GAIN SHOWN DURING THE YEAR UNDER APPEAL ARE IN RELATION TO SALE OF INVESTMENTS HELD BY ASSESSEE AS ON 31 ST MARCH, 2007. THE LD. AR FURTHER SUBMITTED THAT DURING HIS EMPLOYMENT PERIOD , LOK HOUSING & CONSTRUCTION LTD. A PUBLIC LIMITED COMPANY FLOATED ISSUE OF FULLY CONVERTIBLE WARRANTS HAVING LOCK IN PERIOD OF ONE Y EAR FROM THE DATE OF ALLOTMENT AND THE ASSESSEE ACQUIRED THESE WARRAN TS BY PAYING ITA NO.168/AHD/2012 ASST. YEAR 2008-09 6 10% OF THE TOTAL COST OF RS.43,70,000/- AND THEREAF TER DURING THE YEAR UNDER APPEAL THESE WARRANTS WERE EXCHANGED AND BALA NCE 90% OF THE AMOUNT WAS PAID FOR GETTING THE SHARES TRANSFER RED TO THE DEMAT ACCOUNT. SOURCE OF THE INVESTMENT OF 90% COST OF TH E SHARES WAS FROM UNSECURED LOAN TAKEN FROM HIS RELATIVES. 9. LD. AR ALSO SUBMITTED THAT THERE ARE SERIES OF J UDGMENTS AS WELL AS CBDT CIRCULAR WHICH SUPPORT THE STAND OF AN ASSESSEE AND ALSO ALLOWED TWO PORTFOLIOS SIMULTANEOUSLY I.E. INV ESTMENT PORTFOLIO AND TRADING PORTFOLIO AND ABOUT THE TREATMENT OF IN VESTMENT IN THE BOOKS OF ACCOUNT AS TO WHETHER THEY ARE SHOWN AS IN VESTMENT OR STOCK IN TRADE OR BOTH. SINCE THE CASE OF ASSESSEE FALLS IN THE LINE WITH CIRCULAR OF CBDT AND FACTUAL CIRCUMSTANCES WHICH AR E VERY CLEAR THAT INVESTMENTS HELD BY ASSESSEE AS ON 31 ST MARCH, 2007 WERE SOLD DURING THE YEAR AND PROFITS RELATING TO THESE SHARE S HAVE BEEN SHARES AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GA IN. 9.1 LD.AR PLACED RELIANCE ON THE DECISION OF CO-ORD INATE BENCH, MUMBAI IN THE CASE OF ACIT VS. NAISHADH V. VACHHARA JANI IN ITA NO.6429/MUM/2009 FOR ASST. YEAR 2006-07, VIDE ORDER DATED 25.2.2011. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE ARISING IN THIS GROUND OF APPE AL, IS IN RELATION TO TREATMENT OF PROFIT FROM SALE OF SHARES WHICH HAVE BEEN SHOWN AS SHORT TERM CAPITAL GAIN BY ASSESSEE AT RS.2,04,87,7 55/- WHEREAS LD. ASSESSING OFFICER TREATED THE SAME AS BUSINESS INCO ME. LD. AR HAS ITA NO.168/AHD/2012 ASST. YEAR 2008-09 7 REFERRED AND RELIED ON THE DECISION OF THE CO-ORDIN ATE BENCH, MUMBAI IN THE CASE OF ACIT VS. NAISHADH V. VACHHARAJANI IN ITA NO.6429/MUM/2009 FOR ASST. YEAR 2006-07, VIDE ORDER DATED 25.2.2011. ON GOING THROUGH THE COMPUTATION OF INCO ME, WE OBSERVE THAT ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.2,04,87,755/- AND WHILE EXAMINING THIS COMPUTATION IN THE LIGHT O F SUBMISSION BY LD. AR THAT, THIS SHORT TERM CAPITAL GAIN IS ARISING OU T OF THE SALE OF SHARES HELD BY ASSESSEE SINCE LAST YEAR AND WERE SHOWN UND ER THE HEAD INVESTMENT IN SHARES IN HIS BALANCE SHEET AND THE S AME IS FOUND TO BE CORRECT. 11. THE MAJOR AMOUNT OF CAPITAL GAIN IS IN RELATION TO SCRIPS IN THE NAME OF LOK HOUSING AND CONSTRUCTION LTD. OF WHICH ASSESSEE HAS SOLD 4,37,000 SHARES AND HAS EARNED A CAPITAL GAIN OF RS.2,03,86,894/-. IN ORDER TO FURTHER EXAMINE THE T RANSACTIONS OF SALE OF SHARES OF LOK HOUSING AND CONSTRUCTION LTD. WE F IND THAT ASSESSEE APPLIED FOR ACQUIRING FULLY CONVERTIBLE WARRANTS OF THIS COMPANY ON 26 TH FEBRUARY, 2006 AND PAID 10% I.E. RS.4.60 PER WARRA NT FOR 95,000 WARRANTS AT THE TIME OF APPLICATION. THEREAFTER ON 10.5.2006 WARRANTS WERE ALLOTTED TO THE ASSESSEE FOR AN AMOUNT OF RS.4 ,37,000/- WHICH IS DULY APPEARING IN THE BALANCE SHEET OF ASSESSEE AS ON 31 ST MARCH, 2007 UNDER THE INVESTMENT IN SHARES HEAD. THEREAFTE R IN THE BEGINNING OF F.Y. 2007-08 ASSESSEE IN ORDER TO GET WARRANTS CONVERTED INTO EQUITY SHARES PAID THE BALANCE AMOU NT I.E. 90% WHICH WORKS OUT AT RS.39.33 LACS AND ACQUIRED THE EQUITY SHARES OF THE COMPANY AND GOT IT IN DEMAT FORM. ALL THESE SHARES WERE SOLD IN BETWEEN 1.8.2007 AND 5.2.2008. THE ASSESSEE PAID IN TEREST ON ITA NO.168/AHD/2012 ASST. YEAR 2008-09 8 BORROWED FUNDS FOR PAYING RS.39.33 LACS TOWARDS BAL ANCE AMOUNT OF ALLOTMENT MONEY FOR CONVERTING WARRANTS INTO SHARES AND PAID INTEREST OF RS.8,48,296/- TO HIS FATHER IN LAW AND UNCLE IN LAW FROM WHOM FUND WAS BORROWED AND ALSO DID NOT CLAIM THIS INTEREST E XPENDITURE AGAINST BUSINESS INCOME. THIS SHOWS THAT GAIN OF RS.2,03,86 ,984/- FROM SALE OF SHARES OF LOK HOUSING & CONSTRUCTION LTD. GOT IT S ORIGINATION IN THE PREVIOUS YEAR WHEN WARRANTS WERE ACQUIRED BY PAYING 10% OF THE COST OF WARRANTS. 12. WE FURTHER FIND THAT CO-ORDINATE BENCH MUMBAI H AS ADJUDICATED SIMILAR ISSUE WHEREIN ASSESSEE HAS SHOWN INCOME FRO M LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN, SPECULATI ON PROFIT F&O TRADING AND INCOME FROM PROFESSION AND HELD IN FAVO UR OF ASSESSEE BY OBSERVING AS UNDER :- 4. WE HAVE HEARD MR. S.K. MOHANTY, LEARNED DR ON BEHALF OF THE REVENUE AND MR. PRAMOD KUMAR PARIDA, LEARNED COUNSEL FOR TH E ASSESSEE. 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE, A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 6. THE ASSESSEE IN THIS CASE HAS FILED A PAPER BOO K RUNNING INTO 47 PAGES. AT PAGE 10, THE DETAILS OF THE SHARES WHICH WERE SO LD AND WHICH GAVE RISE TO LONG TERM CAPITAL GAINS, WERE LISTED OUT. A PERUSAL OF THIS LIST SHOWS THAT IN THE CASE OF SATYAM COMPUTERS, THE ASSESSEE HELD THE SHARES FROM MORE THAN 12 YEARS. IN THE CASE OF KITPLY INDUSTRIES THE SHARES WERE HELD FROM MORE THAN 10 YEARS. IN THE CASE OF PIDILITE INDUSTRIES AND RADIC O KHAITAN THE SHARES WERE HELD FOR MORE THAN 13 YEARS AND 11 YEARS. THE SHARES OF IFCI WERE ALSO HELD FOR 11 YEARS AND 6 MONTHS. A PERUSAL OF THE PERIOD HOLDING , DEMONSTRATES THAT THE ASSESSEE HAS ACTED AS INVESTOR AND HAS HELD THESE 1 2 SCRIPS AS AN INVESTOR AND NOT AS A TRADER. THUS THE INCOME ARISING OUT OF SAL E OF THESE 12 SCRIPS, IN OUR ITA NO.168/AHD/2012 ASST. YEAR 2008-09 9 HUMBLE OPINION, IS TO BE ASSESSED ONLY UNDER THE HE AD 'LONG TERM CAPITAL GAINS'. 7. COMING TO THE SALE OF SHARES WHICH RESULTED IN S HORT TERM CAPITAL GAINS, WE DO NOT FIND ANY INTRADAY TRADING. IN THE CASE OF SPIC SHARES THE PERIOD OF HOLDING WAS MORE THAN 330 DAYS. SIMILARLY IN MANY C ASES LIKE TATA TELE, THE PERIOD OF HOLDING WAS MORE THAN 200 DAYS. MOST OF T HE SHARES, AS POINTED OUT BY THE CIT(APPEALS), WERE HELD FOR A PERIOD OF 2 TO 5 MONTHS. THE ASSESSEE HAS OFFERED THE INCOME FROM SPECULATION AND INCOME FROM FUTURES AND OPTIONS AS BUSINESS INCOME. KEEPING IN VIEW THE FACTS OF THE C ASE, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF THE CIT(APPEAL S) AT PARA 5, WHICH IS EXTRACTED BELOW, IS TO BE UPHELD: '5. DECISION WITH REASONING: 5.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRES ENTATIVE AND THE STAND TAKEN BY THE A.O. AS SEEN FROM THE ASSESSMENT ORDER DATED 31.10.2007 FOR A,Y. 2005-2006, THE A.O. HAS ACCEPTE D THE CLAIM OF LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL LOSS IN RE SPECT OF SHARES WHICH WERE TAKEN DELIVERY AND SOLD THROUGH THE DEMAT ACCO UNT OF THE APPELLANT. IT IS ALSO SEEN THAT THE APPELLANT HAS SHOWN SPECUL ATION LOSS OF RS.5,29,282/- FOR A.Y. 2005-2006. THUS THE A.O. DID NOT ASSESS THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN UNDER THE HEAD BUSINESS FOR A.Y. 2005-2006. MERELY BECAUSE THE APPELLANT WAS HA VING SPECULATIVE BUSINESS IN SHARES, THAT DOES NOT MEAN THAT EVEN TH E DELIVERY BASED TRANSACTIONS OF SHARES SHOULD BE ASSESSED UNDER THE HEAD BUSINESS. THE HON'BLE HYDERABAD TRIBUNAL IN THE CASE OF SHAH-LA I NVESTMENTS AND FINANCIAL CONSULTANTS PVT. LTD. VS. DY. CIT (2 SOT 371) HELD THAT THERE IS NO BAR FOR THE SAME ASSESSEE TO DO BUSINESS IN S HARES AND HOLD SOME SHARES AS INVESTMENT. FURTHER AS CONTENDED BY THE R EPRESENTATIVE, THE APPELLANT HAS NO BORROWED FUNDS EITHER AS ON 31.03. 2005 OR AS ON 31.03.2006 AS PER THE BALANCE SHEET WHEREAS THE A.O . HELD IN THE ASSESSMENT ORDER AS [PARA 4.1.5] THAT THE APPELLANT BORROWED LOANS FOR THE PURPOSE OF DOING SHARE BUSINESS WHICH IS TOTALL Y INCORRECT. FURTHER THE APPELLANT HAS BROUGHT TO THE NOTICE OF THE A.O. BY LETTER DATED 15.10.2008 THAT THE SHARES ON WHICH LONG TERM CAPIT AL GAIN WAS OFFERED WERE HELD FOR MORE THAN 3-5 YEARS AND THE SAME ARE SHOWN AS INVESTMENT IN THE BALANCE SHEET, BUT THE A.O. HELD THAT ONLY S OME SHARES WERE HELD FOR MORE THAN A MONTH AND OTHER SHARES WERE HELD FO R A VERY SHORT PERIOD. EVEN IN RESPECT OF SHORT TERM CAPITAL GAIN, THE APP ELLANT HAD ALREADY SUBMITTED BEFORE THE A.O. THEY WERE HELD FOR AT LEA ST 2-5 MONTHS AND ITA NO.168/AHD/2012 ASST. YEAR 2008-09 10 FURTHER SUBMITTED THE DETAILS OF DEMAT ACCOUNT TO P ROVE THIS CLAIM. BUT THE A.O. MERELY HELD THAT THE SHARES WERE HELD FOR VERY SHORT PERIOD EXCEPT VERY FEW SHARES WHICH WERE HELD FOR MORE THA N A MONTH. THUS, I FIND THAT THE A.O. DID NOT APPRECIATE THE FACTS OF THE CASE CORRECTLY. AS SEEN FROM THE DETAILS OF LONG TERM CAPITAL GAIN WOR KING SUBMITTED BY THE APPELLANT, SOME SHARES SERE HELD EVEN FOR MORE THAN 12 YEARS. FOR EG. THE APPELLANT PURCHASED SHARES OF SATYAM COMPUTER I N THE YEAR 1992 AND THE SAME WERE SOLD DURING THIS YEAR AFTER HOLDI NG THEM FOR MORE THAN 12 YEARS. SIMILARLY, SOME OTHER SHARES WERE HELD FO R MORE THAN 8 YEARS AND ONLY SHARES OF MC.DOWELL COMPANY WERE HELD FOR SLIGHTLY MORE THAN A PERIOD OF ONE YEAR. ALL OTHER SHARES WERE HELD FO R MINIMUM OF TWO YEARS AND MAXIMUM OF 13 YEARS. THUS, THERE IS NO RE ASON TO ASSESS LONG TERM CAPITAL GAIN UNDER THE HEAD BUSINESS. SIMILARL Y FOR SHORT TERM CAPITAL GAIN IT IS SEEN THAT MOST OF THE SHARES WER E HELD FOR MORE THAN A MONTH AND SOME SHARES WERE HELD EVEN FOR MORE THAN 300 DAYS LIKE SP1C COMPANY SHARES. MOST OF THE SHARES WERE HELD F OR MORE THAN 100 DAYS WHILE IT IS TRUE THAT VERY FEW SHARES WERE HEL D FOR LESS THAN 100 DAYS. THUS, THE FINDING OF THE A.O. IS INCORRECT IN AS MUCH AS THE REMARK THAT ONLY FEW SHARES WERE HELD FOR MORE THAN ONE MO NTH. WHEN THE A.O. HAS ACCEPTED THE BALANCE SHEET OF THE LAST YEAR IN WHICH THESE SHARES WERE SHOWN AS INVESTMENT, HE CANNOT HANGE THE OPENING IN VESTMENT AS STOCK- IN-TRADE DURING THIS YEAR, OTHERWISE IT WOULD BE CO NTRARY TO THE STAND TAKEN BY THE A.O. HIMSELF IN THE EARLIER YEAR. FURT HER IT IS SEEN THAT THE APPELLANT HAS PAID STT IN RESPECT OF SHARE TRANSACT IONS AS APPLICABLE TO THE INVESTMENT. 5.2 FURTHER THE HON'BLE ITAT IN THE CASE OF GOPAL P UROHIT VS. JCIT (29 SOT 117) HELD AS UNDER IN PARA 8.1 'IN OUR VIEW, THE LEGISLATIVE CHANGE OF THIS NATURE, WH EREBY NO CHANGE HAS BEEN MADE IN RESPECT OF NATURE AND MODUS OPERAN DI OF SUCH SHARE TRANSACTIONS, RESULTING INTO ANY ADVANTAGE CANNOT B E TAKEN AWAY BY THE REVENUE AUTHORITIES IN THIS MANNER AND IN THESE CIR CUMSTANCES, WE ARE OF THE VIEW THAT, PRINCIPLE OF CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PRINCIPLE RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E. WHETHER AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO INDIVIDUAL(S) ENTERING INTO THESE TRANSACTIONS. THUS, IN OUR VIEW , IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE BASIS OF PRINCIPL E OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE QUASHED.'. ITA NO.168/AHD/2012 ASST. YEAR 2008-09 11 5.3 FURTHER, THE HON'BLE MUMBAI ITAT IN THE CASE OF JANAK S. KANGWALA VS. ACIT (11 SOT 627) HELD AS UNDER ON THE PRINCIPL E OF CONSISTENCY AND THE ISSUE OF MAGNITUDE OF TRANSACTIONS: 'THE MERE VOLUME OF TRANSACTION TRANSACTED BY HE AS SESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISH ED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUD E OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH TH E PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDIN GS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIE W SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS THERE IS A MATERIAL CH ANGE IN THE FACTS. THEIR LORDSHIPS OF HON'BLE SUPREME COURT IN THE RADHASOAM I SATSANG V CIT [1992] 193 ITR 321 HAVE CATEGORICALLY HELD AS UNDER : '..STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWIN G YEAR, WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASS ESSMENT YEARS HAS BEEN FOND AS A FACT ONE WAY OR THE OTHER AND PARTIE S HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NO CHALLENGING THE ORDE R, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' THE SAME VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI C OURT IN CIT V. NEO POLY PACK (P) LTD. [2000] 245 ITR 492. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS H OLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE INTENTION O F THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION C ONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES IS ON A L ARGE MAGNITUDE BUT THE SAME SHALL NOT DECIDE THE NATURE OF TRANSACTION . SIMILAR TRANSACTION OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG TERM AND SHO RT TERM BASIS. THE PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEAR S AND THE SAME MERITS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. THERE I S NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENT ION WAS TO HOLD THE SHARES IN INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRADE. THE MERE MAGNITUDE OF TRANSACTION DOES NOT CHANGE T HE NATURE OF ITA NO.168/AHD/2012 ASST. YEAR 2008-09 12 TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FRO M CAPITAL GAINS IN THE PAST SEVERAL YEARS.' 5.4 WHEN VIEWED IN THE LIGHT OF THE ABOVE JURISDICT IONAL TRIBUNAL DECISIONS AND FOR THE OTHER REASONS GIVEN ABOVE, I FIND THAT THE CLAIM OF THE APPELLANT HAS TO BE ACCEPTED. ACCORDINGLY, THE A.O. IS DIRECTED TO ACCEPT THE CLAIM NOF SHORT TERM CAPITAL GAIN AND LO NG TERM CAPITAL GAIN. THE A.O. SHALL WITHDRAW REBATE ALLOWED U/S.88E OF T HE I.T. ACT BY ORDER U/S. 154 DATED 03.02.2009 SO FAR AS IT RELATES TO C APITAL GAIN.' 7. IN THE RESULT, THE APPEAL OF THE REVENUE I S DISMISSED. 13. RESPECTFULLY FOLLOWING AND RELYING ON THE DECIS ION OF CO-ORDINATE BENCH IN THE LIGHT OF FACTS DISCUSSED IN THE CASE O F ASSESSEE WE ARE OF THE VIEW THAT IT CANNOT BE SAID THAT ASSESSEE WA S ONLY A TRADER IN SHARES BECAUSE ASSESSEE HAS CLEARLY DEMARCATED THE TRANSACTIONS IN HIS BOOKS OF ACCOUNT, WHICH PROVES THAT HE WAS AN INVESTOR IN SHARES AND SECURITIES UPTO END OF F.Y. 2006-07 AND COMMENC ED THE BUSINESS OF SHARES AND SECURITIES DURING ASST. YEAR 2008-09 I.E. F.Y. 2007-08. HOWEVER, SHARES AND SECURITIES HELD UPTO 3 1.3.2007 WERE SOLD DURING FINANCIAL YEAR 2007-08 AND INCOME EARNE D FROM SALE OF SUCH INVESTMENTS WERE SHOWN AS SHORT TERM AND LONG TERM CAPITAL GAIN. WE, THEREFORE, HOLD THAT THE SHORT TERM CAPIT AL GAIN OF RS. 2,04,87,755/- SHOULD BE ACCEPTED AND THERE IS NO RE ASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND WE UPHOLD THE SAME . THIS GROUND OF REVENUE IS DISMISSED. 14. GROUND NO.2- WHEREIN ADDITION MADE U/S 14A R.W. RULE 8D OF THE IT RULES, AT RS.11,598/- DELETED BY LD. CIT(A), WE FIND THAT LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS DISCLO SED DIVIDEND ITA NO.168/AHD/2012 ASST. YEAR 2008-09 13 INCOME OF RS.11,598/- AND NO EXPENDITURE RELATING T O EXEMPT INCOME WAS DISALLOWED BY ASSESSEE, ASSESSING OFFICER WENT AHEAD TO MAKE DISALLOWANCE OF RS.11,598/- BY APPLYING PROVISIONS OF SECTION 14A R.W.RULE 8D. 15. LD. CIT(A) ALLOWED THE GROUND OF ASSESSEE BY DE LETING THE IMPUGNED ADDITION OF RS.11,598/-. 16. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOI NG THROUGH THE MATERIAL ON RECORD, WE FIND THAT LD. ASSESSING OFFI CER HAS JUST MADE AN ESTIMATED DISALLOWANCE U/S 14A R.W.RULE 8D AT RS .11,598/- WITHOUT EXAMINING THE BOOKS OF ACCOUNT SO TO SATISFY HIMSEL F WITH EXPENDITURE INCURRED IN RELATION TO EARNING DIVIDEND INCOME WHI CH HAS NOT BEEN ADDED BACK BY THE ASSESSEE NEITHER HE HAS MADE A PR OPER CALCULATION WITH RESPECT TO PROVISIONS OF SECTION 1 4A R.W.RULE 8D. WE, THEREFORE, ARE OF THE VIEW THAT LD. CIT(A) HAS RIGH TLY DELETED THE DISALLOWANCE OF RS.11,598/- U/S 14A R. W. RULE 8D A S ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OF EQUAL AMOUN T OF THE EXEMPT INCOME AT RS.11,598/-. ACCORDINGLY THIS GROUND IS D ISMISSED. 18. GROUND NO.3 & 4 ARE OF GENERAL NATURE, WHICH NE ED NO ADJUDICATION. ITA NO.168/AHD/2012 ASST. YEAR 2008-09 14 19. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/04/2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 04/04/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 31/03/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 3/04/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK:4 /4/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: